NOTE 2 - INVESTMENT SECURITIES

The following is a summary of investment securities available-for-sale:

	(Amounts in thousands)
December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	3,344	$	1	$	140	$	3,205
Obligations of states and political subdivisions		71,700		740		324		72,116
U.S. Government-sponsored mortgage-backed securities		69,066		6		1,404		67,668
U.S. Government-sponsored collateralized mortgage obligations		6,463		—		161		6,302
U.S. Government-guaranteed small business administration pools		9,911		—		256		9,655
Trust preferred securities		1,618		—		723		895
Total debt securities		162,102		747		3,008		159,841
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock		2,581		—		—		2,581
Total investment securities available-for-sale	$	164,683	$	747	$	3,008	$	162,422

	(Amounts in thousands)
December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	8,165	$	3	$	180	$	7,988
Obligations of states and political subdivisions		68,219		582		2,031		66,770
U.S. Government-sponsored mortgage-backed securities		81,281		32		1,546		79,767
U.S. Government-sponsored collateralized mortgage obligations		9,504		—		155		9,349
U.S. Government-guaranteed small business administration pools		12,255		1		317		11,939
Trust preferred securities		1,620		—		795		825
Total debt securities		181,044		618		5,024		176,638
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock		2,581		—		—		2,581
Total investment securities available-for-sale	$	183,625	$	618	$	5,024	$	179,219

Trading securities historically had been an investment in obligations of states and political subdivisions, government and agency bonds, short-term government bonds and included cash equivalent investments for trading liquidity. In the second quarter of 2016, management decided to cease its trading activities and liquidated the investments that were in the trading account. The current interest rate and economic environment mitigated the opportunities to generate revenues with a trading strategy. Both realized and unrealized gains and losses for the years ended December 31, 2016 and 2015 are included in the Consolidated Statements of Income.

	(Amounts in thousands)
	2016			2015
Unrealized gains		—		$	7
Unrealized losses		—			(3	)
Net unrealized gains		—			4
Net realized losses		(47	)		(15	)
Trading securities losses, net	$	(47	)	$	(11	)

The amortized cost and fair value of debt securities at December 31, 2017, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	(Amounts in thousands)
	Amortized Cost		Fair Value
Due in one year or less	$	10	$	10
Due after one year through five years		860		894
Due after five years through ten years		8,437		8,315
Due after ten years		77,266		76,652
Total		86,573		85,871
U.S. Government-sponsored mortgage-backed and related securities		75,529		73,970
Total debt securities	$	162,102	$	159,841

The following table sets forth the proceeds, gains and losses realized on securities sold or called for each of the years ended December 31:

	(Amounts in thousands)
	2017		2016		2015
Proceeds on securities sold	$	44,801	$	50,862	$	12,291
Gross realized gains		524		725		135
Gross realized losses		517		259		60

Investment securities with a carrying value of approximately $105.0 million at December 31, 2017 and $111.5 million at December 31, 2016 were pledged to secure deposits and for other purposes. The remaining securities provide an adequate level of liquidity.

The following is a summary of the fair value of securities with unrealized losses and an aging of those unrealized losses at December 31, 2017:

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	—	$	—	$	2,860	$	140	$	2,860	$	140
Obligations of states and political subdivisions		7,430		24		18,066		300		25,496		324
U.S. Government-sponsored mortgage-backed securities		24,888		241		40,968		1,163		65,856		1,404
U.S. Government-sponsored collateralized mortgage obligations		—		—		6,302		161		6,302		161
U.S. Government-guaranteed small business administration pools		2,532		38		7,123		218		9,655		256
Trust preferred securities		—		—		895		723		895		723
Total	$	34,850	$	303	$	76,214	$	2,705	$	111,064	$	3,008

The above table represents 83 investment securities where the fair value is less than the related amortized cost.

The following is a summary of the fair value of securities with unrealized losses and an aging of those unrealized losses at December 31, 2016:

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	7,643	$	180	$	—	$	—	$	7,643	$	180
Obligations of states and political subdivisions		41,668		2,031		—		—		41,668		2,031
U.S. Government-sponsored mortgage-backed securities		68,386		1,487		2,044		59		70,430		1,546
U.S. Government-sponsored collateralized mortgage obligations		9,350		155		—		—		9,350		155
U.S. Government-guaranteed small business administration pools		8,757		317		—		—		8,757		317
Trust preferred securities		—		—		825		795		825		795
Total	$	135,804	$	4,170	$	2,869	$	854	$	138,673	$	5,024

The above table represents 122 investment securities where the current value is less than the related amortized cost.

The trust preferred securities with an unrealized loss represent pools of trust preferred debt issued primarily by bank holding companies. The unrealized losses on the Company’s investment in U.S. Government agencies and corporations, obligations of states and political subdivisions, U.S. Government-sponsored-mortgage-backed securities, U.S. Government-sponsored collateralized mortgage obligations, and U.S. Government-guaranteed small business administration pools were caused by changes in market rates and related spreads. It is expected that the securities would not be settled at less than the amortized cost of the Company’s investment because the decline in fair value is attributable to changes in interest rates and relative spreads and not credit quality. Also, except for the securities described below, the Company does not intend to sell those investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of its amortized cost basis less any current period credit loss. The Company does not consider these investments to be other-than-temporarily impaired at December 31, 2017.

Securities Deemed to be Other-Than-Temporarily Impaired

The Company reviews investment debt securities on an ongoing basis for the presence of other-than-temporary impairment (OTTI) with formal reviews performed quarterly.

For debt securities in an unrealized loss position, management assesses whether (a) it has the intent to sell the debt security or (b) it is more-likely-than-not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an OTTI on the security must be recognized.

In instances in which a determination is made that a credit loss (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not more-likely-than-not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (i.e., the amortized cost basis less any current-period credit loss), the Company presents the amount of the OTTI recognized in the Consolidated Statements of Income.

In these instances, the impairment is separated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other comprehensive income. The total other-than-temporary impairment is presented in the Consolidated Statements of Income with an offset for the amount of the total other-than-temporary impairment that is recognized in other comprehensive income.

As more fully disclosed in Note 11, the Company assessed the impairment of certain securities currently in an illiquid market. The Company records impairment credit losses in earnings (before tax) and non-credit impairment losses in other comprehensive (loss) income (before tax). Through the impairment assessment process, there was no impairment loss recognized in the years ended December 31, 2017, 2016 or 2015.

The following provides a cumulative roll forward of credit losses recognized in earnings for trust preferred securities held for the years ended:

	(Amounts in thousands)
	December 31,
	2017		2016		2015
Beginning balance	$	140	$	140	$	140
Reduction for debt securities for which other-than-temporary impairment has been previously recognized and there is no related other comprehensive income		—		—		—
Credit losses on debt securities for which other-than-temporary impairment has not been previously recognized		—		—		—
Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized		—		—		—
Sale of debt securities						—
Ending balance	$	140	$	140	$	140

At December 31, 2017 and December 31, 2016, there were $895,000 and $825,000, respectively, of investment securities considered to be in non-accrual status. This balance is comprised of two trust preferred securities at December 31, 2017 and 2016. As a result of the delay in the collection of interest payments, management placed these securities in non-accrual status. Current estimates indicate that the interest payment delays may exceed ten years.